What Property Investors Need To Know About The Eastern Suburbs Market
Sydney’s eastern suburbs rental market has been holding up in the face of a challenging year.
We look at what’s behind the numbers for investors.
When COVID-19 first struck, it brought dire headlines about price falls, rising vacancies and rent decreases. What’s really happening and what do property investors need to know about the eastern suburbs property market right now?
Fewer active investors
Corelogic and ABS data shows that, over the past five years, residential property has been attracting fewer investors Australia-wide.
COVID-19 has only made this more pronounced. In August, the amount borrowed by property investors compared to total mortgages fell to a record low of 23.5%. Ten years ago, investors accounted for 36.1% of total mortgages.
Given that this is a long-term trend, it can’t only be attributed to the effects of COVID-19. Tighter lending requirements, government grants for first homeowners, record low-interest rates and debate about changes to negative gearing laws have all played their part in reducing the number of investors compared to homeowners.
Despite this, NSW still has the highest proportion of investors of any state or territory, with 27.4% home loans going to property investors.
But this is down from the incredible high of 55.6% in 2014.
The rental market data isn’t always as bad as the headlines
There’s no doubt that the pandemic had an impact on rents in the city and some eastern suburbs.
As of October, median rents across Sydney sit at $451 a week for units and $611 for houses. This is a reasonable drop from the February 2018 highs of $526 a week for units and $745 for houses.
However, as we have noted many times, the Sydney property market is actually many markets and even markets within markets. So declining rents have not affected all suburbs or property types in the same way.
Data from Domain reveals that rents for Woollahra houses have fallen -13.4% and Bronte houses have fallen -11.4% year on year. But other suburbs have seen substantial rent increases.
Rents for Dover Heights houses have actually risen 29.6% over the past 12 months. Rents for Bellevue Hill houses rose 12.6%, South Coogee houses rose 12.5%, and units in Tamarama rose 6.3%.
Mixed vacancy rates
Meanwhile, vacancy rates – one of the main factors in determining whether rents go up or down – across Sydney have actually been falling since the start of the pandemic. According to SQM Research, Sydney’s vacancy rate was 3.5% by September 2020, down from a peak in May 2020 of 4%.
But it’s not necessarily good news on this front either. The REINSW Vacancy Rate Survey results for September 2020 shows that Sydney’s inner and middle rings have a slightly higher vacancy rate, sitting at 5.5%, balancing a 2.1% vacancy rate in Sydney’s outer suburbs.
This reflects the exodus the pandemic has created, from urban areas to suburban and regional areas, as people work remotely and chase a sea or tree change. It also reflects the fact that many short term Airbnb style rental properties were converted to long-term rental properties, increasing supply and giving potential renters more choice.
The sales market is steady
Ever since COVID-19 struck, low stock levels have been the defining feature of our local property market. This has the effect of cushioning any potential price falls and keeping prices stable.
On the flip side, it means that little is available for investors – or anyone else – to buy. And, as we recently wrote about, prestige properties are holding their value particularly well.
In the main, the property news has been positive despite the pandemic. Although Sydney has seen September quarter declines of -1.6% and a monthly decline of -0.3%, over the past 12 months dwelling values have risen 7.7%.
The auction clearance rate in Sydney for the week of 19 October was healthy at 75.9%.
Paddington: A case study
Paddington is perhaps a good example of where the residential investors market is at.
Figures from realestate.com.au show that, in September 2020, the median house price was $2.4 million: a figure which has been relatively stable since February.
A year ago, in September 2019, it was $2.175 million – so property owners have seen 12-month capital growth of more than 10%.
But the story with rents has been a little different. According to realestateinvestar.com.au, the median weekly rent for houses is now $1,095, down -0.46% on last year, with a median yield now sitting at 2.37%.
The vacancy rate in Paddington is currently 3.36%.
What to keep in mind as a property investor
While this may be great news for tenants impacted by COVID-19, many – including the REINSW – are concerned about the negative impact it could have on mum and dad investors, who may well be financially affected by COVID-19 themselves.
This could put even more downward pressure on rent at a time when they’re already down. Add to this the fact that we’re seeing virtually no immigration and there is no doubt that this is a tenants’ market.
If you’re buying as a property investor, you need to account for this and look to the long term.
Alternatively, if you’re a long term investor thinking of cashing in on capital growth, now is a very good time to sell. There is likely to be strong buyer demand and you could face very few competitors.
If you’re thinking about buying or selling property in the eastern suburbs, don’t hesitate to get in touch with our team today.